What Debt to Income (DTI) Ratio your lender looks for to Qualify for the Loan?
Your debt to income ratio means the amount of your monthly payments that goes towards paying off your debts to the lenders and other sources from which you have taken or borrowed the money. Reason could be any, but if the ratio is higher than the limit which has been set for loan modification, then it may become very difficult for you to get a loan modification done.
When applying for a loan modification, your debt-to-income (DTI) ratio is the key to calculating an affordable house payment. President Obama’s foreclosure prevention plan sets the target front-end DTI for the first mortgage at 31 percent. In other words, your house payment or PITIA (principal, interest, taxes, insurance, and homeowner association fees) cannot exceed 31 percent of your gross monthly income. The DTI ratio comes in two flavors:
- Front-end DTI ratio is based on your house payment. (Under the Obama plan, the front-end DTI target of 31 percent accounts only for the first mortgage. If you other loans against your home, such as a second mortgage or home equity line of credit, you account for those separately as part of your back-end DTI.)
- Back-end DTI ratio is based on all monthly debt payments combined, including your house payment, credit card payments, payments on auto loans, and other loan payments.
DTI ratio is extremely important to get approved for the loan modification according to President Obama’s Plan. What I suggest you is that, Download 60-Minute Loan Modification PDF Workbook. This is the Ultimate step-by-step guide to get approved for the loan modification process. It has all the details about the loan modification process, hardship letter, DTI ratio and many more. You can get approved for the loan modification process by yourself if you have the right information about the process.